Wintrust Financial Corporation
727 North Bank Lane, Lake Forest, Illinois 60045
February, 2002
Dear Shareholders,
This letter provides a brief update on our financial performance
through the fourth quarter of 2001 and other news of Wintrust Financial
Corporation. A more detailed analysis will be available shortly in our 2001
Annual Report. We have also attached a copy of our January 17, 2002 news release
of our earnings for the quarter and year ended December 31, 2001.
HIGHLIGHTS FOR THE FOURTH QUARTER AND YEAR 2001
2001 was a very good year for your Company. We again achieved record
earnings and surpassed the $2.7 billion asset level. Here is an overview
summarizing our financial results and accomplishments during 2001:
o Wintrust generated record earnings for the year and, in fact, had
record earnings each quarter during the year. The Company recorded
earnings of $18.4 million for the year compared with $11.2 million in
2000, up 65%. Excluding a non-recurring charge in 2000, net income was
up 34% in 2001.
o Net income reached $5.2 million for the quarter ended December 31,
2001, an increase of 35% over the $3.8 million recorded in the fourth
quarter of 2000;
o On a per share basis, net income totaled $0.50 per diluted common
share for the fourth quarter of 2001, up from $0.43 in the fourth
quarter of 2000; and, on a year-to-date basis, net income per common
share totaled $1.90 compared to the $1.25 reported in 2000, a 52%
increase. Excluding the aforementioned non-recurring charge in 2000,
net income per diluted common share increased 23%.
o For the twelve months of 2001, return on average equity increased to
15.24%, the highest annual return on equity rate that our young
Company has achieved;
o Total assets rose to $2.7 billion as of December 31, 2001, an increase
of $603 million, or 29%, compared to a year ago. We continue to show
strong and consistent asset growth in our de novo banks;
o Total deposits reached $2.3 billion as of year-end 2001, an increase
of $488 million, or 27%, compared to December 31, 2000;
o Total loans grew to $2.1 billion as of December 31, 2001, an increase
of $503 million, or 32%, compared to a year ago;
o Our net overhead ratio, a measure of operating efficiency, improved to
1.50% in the fourth quarter of 2001 from 1.90% in the prior year
quarter;
- 1 -
o Our asset quality remains strong, as the level of non-performing
assets is very manageable;
o We continue to be one of the fastest growing de novo bank groups in
the country, not only in assets, but in earnings and revenues as well;
o In late December, Northbrook Bank & Trust moved into its new permanent
facility. At the end of December 2001, it has already surpassed the
$85 million asset level, making this one of the fastest growing
Wintrust community banks ever; and
o Also in late December, we announced an agreement to purchase the
Chicago-based Wayne Hummer Investments LLC and Wayne Hummer Management
Company for $28 million in cash and stock.
COMPOUND GROWTH RATES
The following table demonstrates the high and consistent compound
growth rates achieved by your Company over the one, two, three and four year
periods ending December 31, 2001. We will endeavor to continue to post higher
than average growth rates in 2002 and beyond.
Compound Growth Rates
--------------------------------------------------------------------
1 year 2 year 3 year 4 year
------ ------ ------ ------
Total Assets 28.7% 26.9% 26.1% 26.6%
Total Loans 32.3% 27.0% 27.6% 30.4%
Total Deposits 26.7% 25.8% 23.5% 26.0%
Total Revenue 29.6% 33.7% 31.9% 34.2%
Net Income 34.0%* 39.9% 43.5% 39.7%
<FN>
* Excludes non-recurring after-tax charge reported in 2000
</FN>
CASH DIVIDEND INCREASE AND STOCK SPLIT
At its January 24, 2002 meeting, the Board of Directors approved an
increase in the semi-annual dividend to $0.09 per common share ($0.18 on an
annualized basis). This represents a 28.6% increase over the $0.14 paid on an
annual basis in 2001. The Company has increased the dividend rate each year
since a dividend payment was initiated in 2000. At this new dividend rate, the
Company is still retaining approximately 90% of earnings to fund future growth.
The dividend is payable on February 19, 2002 to shareholders of record as of
February 5, 2002.
At the same meeting, the Board of Directors declared a 3-for-2 stock
split of the Company's common stock to be effected in the form of a 50% stock
dividend, payable on March 14, 2002 to shareholders of record as of March 4,
2002. This is Wintrust's first stock split and it is designed to improve the
liquidity of the Company's common stock.
- 2 -
STOCK PRICE PERFORMANCE IN 2001
While we recognize that we cannot control the movements of the stock
market, we can continue to execute a strategy designed to produce consistent
growth in earnings, revenues and assets. Such results will be rewarded in due
course.
We are clearly pleased that the stock price of Wintrust stood at $30.57
per share, or 92% higher than at December 31, 2000, and consider the sharp
upward movement in the stock price to be long overdue recognition of the
Company's growth and performance. By contrast, for the year 2001, the Nasdaq
Bank Index was up 10% and the Nasdaq Composite Index was down 21%. We continue
to believe that we can achieve further meaningful increases in share value as we
continue to execute our strategy.
WAYNE HUMMER COMPANIES
In December, we announced the signing of an agreement to purchase 100%
of the ownership interest of Wayne Hummer Investments LLC (WHI) and Wayne Hummer
Management Company (WHMC) (collectively the "Wayne Hummer Companies"). The Wayne
Hummer Companies are based in Chicago, Illinois and have over seventy-one years'
history of providing financial services. Wayne Hummer Investments is the oldest
brokerage firm headquartered in Chicago that has continuously operated using the
same brand name. Accordingly, the firm is well respected in the Chicago
metropolitan area and its brokerage and asset management client base is
nationwide. It is a company with a terrific operating culture, outstanding
growth and profit potential, and a dedicated management team.
This transaction is a win-win situation for both companies and more
importantly for our customers. Here are some of the reasons why we believe this
acquisition will benefit the Wintrust shareholders:
o We believe this will be an accretive transaction with a well-respected
Chicago firm with consistent profitability, a loyal client base, and
strong corporate culture.
o It is fully supported by both parties--all of the Wayne Hummer senior
officers have agreed to stay on and manage the operations of WHI and
WHMC.
o The additional revenue provided by the Wayne Hummer Companies will
further diversify Wintrust's revenue stream and is expected to result
in non-interest income in excess of 40% of total net revenues, up from
the current level of 27%.
o Currently, the Wayne Hummer Companies have over $400 million in low
cost money market mutual fund deposits that are expected to eventually
become insured deposits in Wintrust banks. Using these deposits to
fund our excess loan production will generate attractive spreads.
o This merger will expedite the profitability of Wintrust's trust and
investment business and will result in over $1 billion in assets under
direct management (including the existing Hummer mutual funds).
o Wintrust will be able to offer full service brokerage services and
proprietary mutual funds to its 50,000 bank and Wintrust Asset
Management customer households through a well-established local
brokerage firm.
- 3 -
o Additional services available from the Wayne Hummer Companies allows
the Wintrust organization to take another big step forward in its
efforts to be a "one-stop" shop for all of its customers' financial
needs.
The transaction is expected to close in the first quarter, subject to
regulatory approval. We will provide more details about the Wayne Hummer
Companies and our plans for the future in our upcoming annual report.
ANNUAL MEETING
Our Wintrust Financial Corporation Annual Meeting of Shareholders is
scheduled to be held on Thursday, May 23, 2002 at 10:00 a.m. Please reserve the
date. We hope you can attend.
SUMMARY
In summary, we are pleased with the Company's significant growth in the
fourth quarter and for the year. This was a very good year in terms of executing
our strategy of balancing growth in the balance sheet with growth in earnings.
For the future, we are confident in our corporate strategy and believe we have
strong momentum going into 2002. We are grateful for your support of our
organization and are enthusiastic about making the year 2002 another good year
in terms of growth in earnings and assets.
Yours truly,
/s/ John S. Lillard /s/ Edward J. Wehmer
------------------- --------------------
John S. Lillard Edward J. Wehmer
Chairman President and CEO
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This letter contains forward-looking statements related to the Company's
financial performance that are based on estimates. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of invoking these safe
harbor provisions. Actual results could differ materially from those addressed
in the forward-looking statements due to factors such as changes in economic
conditions, competition, or other factors that may influence the anticipated
growth rate of loans and deposits, the quality of the loan portfolio, loan and
deposit pricing, unanticipated changes in interest rates that negatively impact
net interest income, future events that may cause unforeseen loan or lease
losses, slower than anticipated development and growth of Tricom and the trust
and investment business, unanticipated changes in the temporary staffing
industry, the ability to adapt successfully to technological changes to compete
effectively in the marketplace, failure to obtain the necessary approvals to
consummate the purchase of the Wayne Hummer Companies, competition and the
related pricing of brokerage and asset management products, unforeseen
difficulties in integrating the acquisition of the Wayne Hummer Companies, the
ability to pursue acquisition and expansion strategies and the ability to
attract and retain experienced senior management. Therefore, there can be no
assurances that future actual results will correspond to these forward-looking
statements.
- --------------------------------------------------------------------------------
- 4 -
Wintrust Financial Corporation
727 North Bank Lane, Lake Forest, Illinois 60045
NEWS RELEASE
FOR IMMEDIATE RELEASE January 17, 2002
- ---------------------
FOR MORE INFORMATION CONTACT:
Edward J. Wehmer, President & Chief Executive Officer
David A. Dykstra, Executive Vice President & Chief Financial Officer
(847) 615-4096
Website address: www.wintrust.com
WINTRUST FINANCIAL CORPORATION REPORTS RECORD EARNINGS
------------------------------------------------------
FOR THE FOURTH QUARTER AND YEAR;
-------------------------------
FOURTH QUARTER NET EARNINGS UP 35%
---------------------------------
LAKE FOREST, ILLINOIS -- Wintrust Financial Corporation ("Wintrust")
(Nasdaq: WTFC) announced record net income of $5.2 million for the quarter ended
December 31, 2001, an increase of $1.3 million, or 35%, over the $3.8 million
recorded in the fourth quarter of 2000. On a per share basis, net income for the
fourth quarter of 2001 totaled $0.50 per diluted common share, a $0.07 per
share, or 16%, increase as compared to the 2000 fourth quarter total of $0.43
per diluted common share. The lower growth rate in the earnings per share as
compared to net income was due to the issuance of 992,500 additional shares of
common stock in June 2001. Return on average equity for the fourth quarter of
2001 was 14.74%, relatively unchanged from the 14.87% reported for the third
quarter of 2001.
For the year ended December 31, 2001, net income totaled a record $18.4
million, or $1.90 per diluted common share, an increase of $4.7 million, or 34%,
compared to the $13.8 million (excluding a non-recurring charge) reported for
2000. Return on average equity for 2001 was 15.24%.
"We are pleased with the Company's continued growth in earnings and
assets in the fourth quarter and for the year as well as the credit quality of
our loan portfolio," commented Edward J. Wehmer, President and Chief Executive
Officer. "In 2001, we increased our assets by 29% and our earnings per share by
23% (excluding the effect of last year's non-recurring charge) while at the same
time increasing our outstanding shares during the year with a common stock
offering."
Mr. Wehmer added, "The Company is well positioned for 2002. We are
excited about our pending acquisition of the Wayne Hummer Companies and look
forward to the challenges and opportunities in the next year. We are comfortable
that we will be able to meet the analysts' consensus earnings estimate for 2002
of $2.16 per share."
- more -
Total assets increased to $2.7 billion at December 31, 2001, an
increase of $603 million, or 29%, compared to $2.1 billion a year ago. Total
loans grew to $2.1 billion as of December 31, 2001, a $503 million, or 32%,
increase over the $1.6 billion balance a year earlier. Total deposits as of
December 31, 2001 were $2.3 billion, an increase of $488 million, or 27%, as
compared to $1.8 billion as of December 31, 2000.
Wintrust's key operating measures, excluding the non-recurring charge
reported in 2000, continue to show impressive growth rates in 2001 as compared
to the prior year, as evidenced by the table below:
12/31/2001
over
Year Year 12/31/2000
Ended Ended Percent
Dollars in thousands, except per share data 12/31/2001 12/31/2000 Improvement
------------------------------------------- ---------- ---------- -----------
Net income $ 18,439 $ 13,761 * 34.0%
Net income per common share - Diluted $ 1.90 $ 1.54 * 23.4%
Net revenues $ 102,812 $ 79,306 29.6%
Net interest income $ 74,014 $ 61,000 21.3%
Net interest margin 3.49% 3.66% (4.6%)
Core net interest margin 3.73% 3.91% (4.6%)
Net overhead ratio 1.59% 1.90% * 16.3%
Return on average assets 0.79% 0.74% * 6.8%
Return on average equity 15.24% 14.20% * 7.3%
At end of period
Total assets $ 2,705,422 $ 2,102,806 28.7%
Total loans, net of unearned income $ 2,061,383 $ 1,558,020 32.3%
Total deposits $ 2,314,636 $ 1,826,576 26.7%
Book value per common share $ 14.58 $ 11.87 22.8%
Market price per common share $ 30.57 $ 15.94 91.8%
---------------------------------------------- --- ---------------------- - -------------------
<FN>
* Excludes non-recurring charge of $4.320 million ($2.606 million after tax)
reported in 2000.
</FN>
For the fourth quarter of 2001, net interest income totaled $19.6
million and increased $3.0 million, or 18%, compared to the prior year quarterly
total of $16.6 million. Noninterest income totaled $7.5 million for the fourth
quarter of 2001, and increased $2.4 million, or 48%, over the fourth quarter of
2000. The increase in noninterest income over the prior year same quarter was
primarily attributable to increases in fees from the origination and sale of
mortgage loans into the secondary market and income from certain covered call
option transactions. Noninterest expense in the fourth quarter of 2001 totaled
$17.2 million, reflecting an increase of $2.5 million, or 17%, over the same
period in 2000. The primary component of the increase in noninterest expense was
an increase in salaries and employee benefits of $1.5 million, or 20%, over the
prior year amount. The increase in salaries and benefits was a result of
continued growth
- more -
and expansion of the de novo banks, increased staffing at the premium finance
subsidiary, increases in commissions paid related to fees on mortgage loans sold
and normal increases in salaries and the cost of employee benefits.
Non-performing assets totaled $13.1 million, or 0.48%, of total assets
at December 31, 2001, reflecting a decrease from the September 30, 2001 level of
$13.6 million, or 0.54% of total assets. The level of non-performing assets in
the Company's core banking loans remains low and very manageable, consisting of
$1.6 million in residential real estate and home equity loans and $2.2 million
of commercial, commercial real estate and consumer loans. Non-performing
indirect automobile loans were $857,000, or 0.47%, of that portfolio. The
non-performing asset level for the premium finance loan portfolio was $8.2
million at December 31, 2001, reflecting a decrease of $969,000 from the
September 30, 2001 amount and a decrease of $2.5 million from the peak of the
non-performing loans reported as of March 31, 2001. About a year ago the Company
began to eliminate relationships with insurance agencies that were referring
business to our premium finance subsidiary that had relatively small balances
and higher than normal delinquency rates. We continue to see progress in this
portfolio and continue to expect the level of non-performing loans related to
this portfolio to decline again in the next quarter.
Wintrust is a multi-bank holding company whose common stock is traded
on the Nasdaq Stock Market(R). Its seven suburban Chicago community bank
subsidiaries, each of which was founded as a de novo bank since December 1991,
are located in high income retail markets -- Lake Forest Bank & Trust Company,
Hinsdale Bank & Trust Company, North Shore Community Bank & Trust Company in
Wilmette, Libertyville Bank & Trust Company, Barrington Bank & Trust Company,
Crystal Lake Bank & Trust Company and Northbrook Bank & Trust Company. The banks
also operate facilities in Lake Bluff, Highwood, Glencoe, Winnetka, Clarendon
Hills, Western Springs, Skokie, Wauconda, McHenry and Hoffman Estates, Illinois.
Additionally, the Company operates three non-bank subsidiaries. First Insurance
Funding Corporation, one of the largest commercial insurance premium finance
companies operating in the United States, serves commercial loan customers
throughout the country. Wintrust Asset Management Company, a trust subsidiary,
allows Wintrust to service customers' trust and investment needs at each banking
location. Tricom, Inc. provides short-term accounts receivable financing and
value-added out-sourced administrative services, such as data processing of
payrolls, billing and cash management services, to temporary staffing service
clients located throughout the United States. Currently, Wintrust operates a
total of 29 banking offices and is in the process of constructing several
additional banking facilities. Wintrust Financial Corporation has been one of
the fastest growing de novo bank groups in Illinois.
# # #
WINTRUST FINANCIAL CORPORATION
SELECTED FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA
(AT END OF PERIOD):
Total assets $ 2,705,422 $ 2,102,806
Total deposits 2,314,636 1,826,576
Total loans, net of unearned income 2,061,383 1,558,020
Notes payable 46,575 27,575
Long-term debt - trust preferred securities 51,050 51,050
Total shareholders' equity 141,278 102,276
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED STATEMENTS OF INCOME DATA:
Net interest income $ 19,593 $ 16,643 $ 74,014 $ 61,000
Net revenues 27,049 21,674 102,812 79,306
Income before taxes and cumulative effect of accounting change 7,959 5,611 29,129 16,448
Net income before cumulative effect of accounting change 5,164 3,815 18,693 11,155
Net income 5,164 3,815 18,439 11,155
Net income per common share - Basic 0.53 0.44 2.01 1.28
Net income per common share - Diluted 0.50 0.43 1.90 1.25
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios:
Net interest margin 3.29% 3.65% 3.49% 3.66%
Core net interest margin (1) 3.50% 3.93% 3.73% 3.91%
Non-interest income to average assets 1.15% 0.99% 1.24% 0.99%
Non-interest expense to average assets 2.65% 2.90% 2.83% 3.12%
Net overhead ratio 1.50% 1.90% 1.59% 2.13%
Net overhead ratio - excluding fraud charge, net (2) 1.50% 1.94% 1.59% 1.90%
Efficiency ratio 63.12% 67.34% 63.66% 72.33%
Return on average assets 0.80% 0.75% 0.79% 0.60%
Return on average equity 14.74% 15.44% 15.24% 11.51%
Average total assets $ 2,574,812 $ 2,014,873 $ 2,328,032 $ 1,853,582
Average shareholders' equity 139,027 98,283 120,995 96,918
Average loan-to-average deposit ratio 87.2% 87.5% 87.4% 87.7%
Non-performing assets to total assets 0.48% 0.46%
Common Share Data at end of period:
Market price per common share $ 30.57 $ 15.94
Book value per common share $ 14.58 $ 11.87
Common shares outstanding 9,687,777 8,614,395
Other Data at end of period:
Number of:
Bank subsidiaries 7 7
Non-bank subsidiaries 3 3
Banking offices 29 28
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The core net interest margin excludes the interest expense associated with
the Company's Trust Preferred Securities.
(2) Excludes non-recurring charge of $4.52 million and a partial recovery of
$200,000 reported in the third and fourth quarter, respectively of 2000,
related to a fraudulent loan scheme perpetrated against the Company's
premium finance subsidiary.
</FN>
- 1 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
(In thousands)
DECEMBER 31, December 31,
2001 2000
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 71,575 $ 65,413
Federal funds sold and securities purchased under resale agreements 51,955 164,641
Interest-bearing deposits with banks 692 182
Available-for-Sale securities, at fair value 385,350 193,105
Loans, net of unearned income 2,061,383 1,558,020
Less: Allowance for possible loan losses 13,686 10,433
- --------------------------------------------------------------------------------------------------------------------
Net loans 2,047,697 1,547,587
Premises and equipment, net 99,132 86,386
Accrued interest receivable and other assets 38,936 34,722
Goodwill and other intangible assets, net 10,085 10,770
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 2,705,422 $2,102,806
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 254,269 $ 198,319
Interest bearing 2,060,367 1,628,257
- --------------------------------------------------------------------------------------------------------------------
Total deposits 2,314,636 1,826,576
Short-term borrowings 28,074 43,639
Federal Home Loan Bank advances 90,000 -
Notes payable 46,575 27,575
Long-term debt - trust preferred securities 51,050 51,050
Accrued interest payable and other liabilities 33,809 51,690
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 2,564,144 2,000,530
- --------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock - -
Common stock 9,688 8,857
Surplus 102,800 83,710
Common stock warrants 99 100
Treasury stock, at cost - (3,863)
Retained earnings 30,995 13,835
Accumulated other comprehensive loss (2,304) (363)
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 141,278 102,276
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,705,422 $2,102,806
====================================================================================================================
- 2 -
WINTRUST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 36,227 $36,948 $ 149,057 $ 130,910
Interest bearing deposits with banks 6 2 10 26
Federal funds sold and securities purchased under resale agreements 1,901 571 5,632 1,627
Securities 2,620 4,372 11,756 15,621
- ------------------------------------------------------------------------------------------------------------------
Total interest income 40,754 41,893 166,455 148,184
- ------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 18,618 22,823 83,503 78,670
Interest on Federal Home Loan Bank advances 677 - 942 -
Interest on short-term borrowings and notes payable 578 1,139 2,845 4,371
Interest on long-term debt - trust preferred securities 1,288 1,288 5,151 4,143
- ------------------------------------------------------------------------------------------------------------------
Total interest expense 21,161 25,250 92,441 87,184
- ------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 19,593 16,643 74,014 61,000
Provision for possible loan losses 1,898 1,384 7,900 5,055
- ------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 17,695 15,259 66,114 55,945
- ------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Fees on mortgage loans sold 2,634 894 7,831 2,911
Service charges on deposit accounts 714 510 2,504 1,936
Trust and asset management fees 537 497 1,996 1,971
Gain on sale of premium finance receivables 908 954 4,564 3,831
Administrative services revenue 947 1,064 4,084 4,402
Net securities gains (losses) 22 54 337 (40)
Other 1,694 1,058 7,482 3,295
- ------------------------------------------------------------------------------------------------------------------
Total non-interest income 7,456 5,031 28,798 18,306
- ------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 9,384 7,852 35,628 28,119
Occupancy, net 1,161 1,141 4,821 4,252
Equipment expense 1,670 1,455 6,297 5,101
Data processing 881 723 3,393 2,837
Advertising and marketing 460 411 1,604 1,309
Professional fees 531 551 2,055 1,681
Amortization of intangibles 169 178 685 713
Premium finance defalcation - (200) - 4,320
Other 2,935 2,568 11,300 9,471
- ------------------------------------------------------------------------------------------------------------------
Total non-interest expense 17,191 14,679 65,783 57,803
- ------------------------------------------------------------------------------------------------------------------
Income before taxes and cumulative effect of accounting change 7,960 5,611 29,129 16,448
Income tax expense 2,796 1,796 10,436 5,293
- ------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting change 5,164 3,815 18,693 11,155
Cumulative effect of change in accounting for derivatives, net of tax - - 254 -
- ------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,164 $ 3,815 $ 18,439 $ 11,155
==================================================================================================================
BASIC EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.53 $ 0.44 $ 2.04 $ 1.28
Cumulative effect of accounting change, net of tax - - 0.03 -
- ------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - BASIC $ 0.53 $ 0.44 $ 2.01 $ 1.28
==================================================================================================================
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ 0.50 $ 0.43 $ 1.93 $ 1.25
Cumulative effect of accounting change, net of tax - - 0.03 -
- ------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE - DILUTED $ 0.50 $ 0.43 $ 1.90 $ 1.25
==================================================================================================================
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.00 $ 0.00 $ 0.14 $ 0.10
==================================================================================================================
Weighted average common shares outstanding 9,685 8,614 9,156 8,711
Dilutive potential common shares 636 242 540 230
- ------------------------------------------------------------------------------------------------------------------
Average common shares and dilutive common shares 10,321 8,856 9,696 8,941
==================================================================================================================
- 3 -
NET INTEREST INCOME
The following table presents a summary of the Company's net interest income and
related net interest margins, calculated on a fully taxable equivalent basis,
for the quarters ended December 31, 2001 and 2000:
FOR THE QUARTER ENDED For the Quarter Ended
DECEMBER 31, 2001 December 31, 2000
----------------------------------------- ----------------------------------------
(dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
- ---------------------- ---------------- ------------- ---------- --------------- ------------- ----------
Liquidity management assets (1) (2) $446,209 $ 4,545 4.04% $294,690 $ 4,960 6.69%
Loans, net of unearned income (2) 1,944,166 36,419 7.43 1,537,385 37,112 9.60
---------------- ------------- ---------- --------------- ------------- ----------
Total earning assets 2,390,375 40,964 6.80% 1,832,075 42,072 9.14%
---------------- ------------- ---------- --------------- ------------- ----------
Interest-bearing deposits 1,997,256 18,618 3.70% 1,574,841 22,823 5.77%
Federal Home Loan Bank advances 64,565 677 4.16 -- -- --
Short-term borrowings and notes payable 55,229 578 4.15 76,227 1,139 5.95
Long-term debt - trust preferred securities 51,050 1,288 10.09 51,050 1,288 10.09
---------------- ------------- ---------- --------------- ------------- ----------
Total interest-bearing liabilities 2,168,100 21,161 3.87% 1,702,118 25,250 5.90%
---------------- ------------- ---------- --------------- ------------- ----------
Tax equivalent net interest income $ 19,803 $ 16,822
============= =============
Net interest margin 3.29% 3.65%
========== ==========
Core net interest margin(3) 3.50% 3.93%
========== ==========
- -------------------------------
<FN>
(1) Liquidity management assets include securities, interest earning deposits
with banks and federal funds sold.
(2) Interest income on tax-advantaged loans and securities reflects a
tax-equivalent adjustment based on a marginal federal corporate tax rate of
35%. This total adjustment for the quarters ended December 31, 2001 and
2000 was $210,000 and $179,000, respectively.
(3) The core net interest margin excludes the interest expense associated with
the Company's Trust Preferred Securities.
</FN>
The following table presents a summary of the Company's net interest income and
related net interest margins, calculated on a fully taxable equivalent basis,
for the years ended December 31, 2001 and 2000:
FOR THE YEAR ENDED For the Year Ended
DECEMBER 31, 2001 December 31, 2000
----------------------------------------- ---------------------------------------
(dollars in thousands) AVERAGE INTEREST RATE Average Interest Rate
- ---------------------- ---------------- ------------- ---------- --------------- ------------- ---------
Liquidity management assets (1) (2) $360,443 $ 17,463 4.84% $ 263,666 $ 17,322 6.57%
Loans, net of unearned income (2) 1,786,596 149,850 8.39 1,416,419 131,428 9.28
---------------- ------------- ---------- --------------- ------------- ---------
Total earning assets 2,147,039 167,313 7.79% 1,680,085 148,750 8.85%
---------------- ------------- ---------- --------------- ------------- ---------
Interest-bearing deposits 1,836,819 83,503 4.55% 1,449,837 78,670 5.43%
Federal Home Loan Bank advances 21,945 942 4.29 -- -- --
Short-term borrowings and notes payable 53,649 2,845 5.30 74,893 4,371 5.84
Long-term debt - trust preferred securities 51,050 5,151 10.09 41,990 4,143 9.87
---------------- ------------- ---------- --------------- ------------- ---------
Total interest-bearing liabilities 1,963,463 92,441 4.71% 1,566,720 87,184 5.56%
---------------- ------------- ---------- --------------- ------------- ---------
Tax equivalent net interest income $ 74,872 $ 61,566
============= =============
Net interest margin 3.49% 3.66%
========== =========
Core net interest margin(3) 3.73% 3.91%
========== =========
- -------------------------------
<FN>
(1) Liquidity management assets include securities, interest earning deposits
with banks and federal funds sold.
(2) Interest income on tax-advantaged loans and securities reflects a
tax-equivalent adjustment based on a marginal federal corporate tax rate of
35%. This total adjustment for the years ended December 31, 2001 and 2000
was $858,000 and $566,000, respectively.
(3) The core net interest margin excludes the interest expense associated with
the Company's Trust Preferred Securities.
</FN>
- 4 -
Net interest income, which is the difference between interest income and fees on
earning assets and interest expense on deposits and borrowings, is the major
source of earnings for the Company. Tax-equivalent net interest income for the
quarter ended December 31, 2001 totaled $19.8 million, an increase of $3.0
million, or 18%, as compared to the $16.8 million recorded in the same quarter
of 2000. This increase mainly resulted from loan growth and the issuance of
$22.2 million of common equity in June 2001, and was offset in part by lower
yields. Average loans in the fourth quarter of 2001 increased $407 million, or
26%, over the fourth quarter of 2000. However, the yields on earning assets and
rates paid on interest-bearing liabilities during the fourth quarter of 2001
reflect sharp decreases from the yields and rates in the fourth quarter of 2000
resulting from eleven rate cuts by the Federal Reserve in 2001 totaling 475
basis points.
Net interest margin represents net interest income as a percentage of the
average earning assets during the period. For the fourth quarter of 2001, the
net interest margin was 3.29%, a decrease of 36 basis points when compared to
the margin of 3.65% in the prior year quarter. This decrease resulted primarily
from the effects of continued decreases in short-term rates causing compression
in the spread between the rates on interest-bearing liabilities and the yields
on earning assets. Compression results when deposit rates cannot be reduced
commensurate with changes in market rates due to current low level of the rates
paid on certain deposit accounts. The core net interest margin, which excludes
the interest expense on the Company's trust preferred securities, was 3.50% for
the fourth quarter of 2001, and decreased 43 basis points when compared to the
prior year quarterly core margin of 3.93%.
The yield on total earning assets for the fourth quarter of 2001 was 6.80% as
compared to 9.14% in 2000, a decrease of 234 basis points resulting primarily
from the effect of decreases in general market rates on liquidity management
assets and loans. Loans are the most significant component of the earning asset
base, accounting for 81% and 84% of average earning assets in the fourth
quarters of 2001 and 2000, respectively. The fourth quarter 2001 loan yield of
7.43% decreased 217 basis points when compared to the prior year quarterly yield
of 9.60% and was due primarily to lower market rates. The average prime lending
rate for the fourth quarter of 2001 was 5.17%, reflecting a decrease of 433
basis points, or 46%, compared to the average prime lending rate of 9.50% for
the fourth quarter of 2000. The Company's loan portfolio does not re-price in a
parallel fashion to changes in the prime rate due to a portion of the portfolio
being longer-term fixed rate loans. The yield on liquidity management assets was
4.04% in the fourth quarter of 2001, compared to 6.69% in the same period of
2000.
The rate paid on total interest-bearing liabilities for the fourth quarter of
2001 was 3.87% as compared to 5.90% in 2000, a decrease of 203 basis points.
Interest-bearing deposits accounted for 92% of total interest-bearing
liabilities in the fourth quarter of 2001 and 93% of total interest-bearing
liabilities in the same period of 2000. The rate paid on interest-bearing
deposits averaged 3.70% for the fourth quarter of 2001 versus 5.77% for the same
quarter of 2000, a decrease of 207 basis points. This decrease was caused
primarily by continued decreases in market rates. During 2001, the Banks
initiated borrowing from the Federal Home Loan Bank. During the fourth quarter
of 2001, the Bank had average outstanding advances from the Federal Home Loan
Bank of $65 million with an average rate of 4.16%. The Banks will continue to
evaluate further advances from the Federal Home Loan Bank as a funding source in
the future. The rate paid on short-term borrowings and notes payable decreased
180 basis points to 4.15% in the fourth quarter of 2001 as compared to 5.95% in
the same quarter of 2000. The trust preferred securities have fixed rates of
interest averaging 10.09%
For the year ended December 31, 2001, tax-equivalent net interest income totaled
$74.9 million and increased $13.3 million, or 22%, over the $61.6 million
recorded in the same period of 2000. Consistent with the quarterly comments,
this increase was mainly due to the growth in the Company's earning asset base,
offset in part by lower yields and rates. Average loans represented 83% and 84%
of average earnings assets in 2001 and 2000, respectively. Average loans in 2001
increased $370 million, or 26%, over the average balance in 2000.
- 5 -
Interest and fees on loans, on a tax equivalent basis, totaled $150 million for
the year ended December 31, 2001, and increased $18.4 million, or 14%, over the
same period of 2000. The net interest margin for the year ended December 31,
2001 was 3.49%, a decrease of 17 basis points when compared to the same period
in 2000. The core net interest margin for 2001 was 3.73%, a decrease of 18 basis
points from the same period of 2000. Consistent with the fourth quarter margin,
the year-to-date margin decrease was mainly the result of sustained decreases in
short-term interest rates.
NON-INTEREST INCOME
For the fourth quarter of 2001, non-interest income totaled $7.5 million and
increased $2.4 million, or 48%, over the prior year quarter. Significant
increases were realized in fees from the origination and sale of mortgage loans
into the secondary market and income from certain covered call option
transactions.
Fees on mortgage loans sold include income from originating and selling
residential real estate loans into the secondary market. For the quarter ended
December 31, 2001, these fees totaled $2.6 million, an increase of $1.7 million,
or 195%, from the prior year quarter. This increase was due to significantly
higher levels of mortgage origination volumes, particularly refinancing
activity, caused by the recent decreases in mortgage interest rates. Management
anticipates that the high levels of refinance activity will taper off to more
normalized levels in 2002 barring any further reductions in mortgage interest
rates.
The administrative services revenue contributed by Tricom added $947,000 to
total non-interest income in the fourth quarter of 2001, a decrease of $117,000
from the prior year quarter. This revenue comprises income from administrative
services, such as data processing of payrolls, billing and cash management
services, to temporary staffing service clients located throughout the United
States. The revenue growth at Tricom has stagnated in recent quarters due to the
general slowdown in the economy and the reduction in the placement of temporary
staffing individuals by Tricom's customers. Tricom also earns interest and fee
income from providing short-term accounts receivable financing to this same
client base, which is included in the net interest income category.
As a result of continued strong loan originations during the fourth quarter of
2001, the Company sold approximately $58 million of premium finance receivables
to an unrelated third party and recognized gains of $908,000 related to this
activity, compared to the sale of $53 million of premium finance receivables in
the fourth quarter of 2000 that resulted in gains of $954,000. The Company
currently has a philosophy of maintaining its average loan-to-deposit ratio in
the range of 85-90%. During the fourth quarter of 2001, the ratio was
approximately 87%. Accordingly, the Company sold excess premium finance
receivables volume to an unrelated third party financial institution. Consistent
with Wintrust's strategy to be asset-driven and the desire to maintain our
loan-to-deposit ratio in the aforementioned range, it is probable that similar
sales of premium finance receivables will occur in the future.
Service charges on deposit accounts totaled $714,000 for the fourth quarter of
2001, an increase of $204,000, or 40%, when compared to the same quarter of
2000. This increase was due to a higher deposit base and a larger number of
accounts at the banking subsidiaries. The majority of deposit service charges
relates to customary fees on overdrawn accounts and returned items. The level of
service charges received is substantially below peer group levels as management
believes in the philosophy of providing high quality service without encumbering
that service with numerous activity charges.
- 6 -
Trust and asset management fees totaled $537,000 for the fourth quarter of 2001,
compared to $497,000 in the same quarter of 2000. The down-turn in the stock
market over the past year has had a negative impact on the valuation of the
equity securities under management, similar to that of the broader market, and
the fees earned thereon. Wintrust is committed to growing the trust and
investment business in order to better service its customers and create a more
diversified revenue stream. As a result of that commitment, during the fourth
quarter of 2001, the Company announced the signing of an agreement to purchase
Wayne Hummer Investments LLC, a registered broker/dealer, and Wayne Hummer
Management Company, a registered investment advisor, (collectively, the Wayne
Hummer Companies). The Wayne Hummer Companies are locally-based companies with a
well-known and respected reputation. Wintrust believes that the acquisition of
the Wayne Hummer Companies will diversify and enhance the Company's revenue
stream. The transaction is subject to regulatory approval and is expected to
close in the first quarter of 2002. (See Company's press release dated December
26, 2001.)
Other non-interest income for the fourth quarter of 2001 totaled $1.7 million
and increased $636,000, or 60%, over the prior year quarterly total of $1.1
million. This increase was due primarily to a $632,000 increase in premium
income from certain covered call option transactions. The Company routinely
enters into these transactions with the goal of enhancing its overall return on
its investment portfolio. The Company generally writes the call options against
certain U.S. Treasury and agency issues held in its portfolio for liquidity and
other purposes. The premium income from these covered call option transactions
totaled $910,000 in the fourth quarter of 2001 and $278,000 in the same period
of 2000. Rental income from equipment leases totaled $375,000 in the fourth
quarter of 2001 and $390,000 in the fourth quarter of 2000.
For the year ended December 31, 2001, total non-interest income was $28.8
million and increased $10.5 million, or 57%, when compared to 2000. This
increase was primarily the result of a $4.9 million increase in fees from the
sale of mortgage loans and a $3.5 million increase in premium income from
covered call option transactions. Also contributing to the increase in other
non-interest income were increases of $733,000 in gains on the sale of premium
finance receivables, $568,000 in service charges on deposit accounts and
$377,000 in net securities gains. These increases were partially offset by a
decrease of $318,000 in administrative services revenue generated by Tricom.
NON-INTEREST EXPENSE
Non-interest expense for the fourth quarter of 2001 totaled $17.2 million and
increased $2.5 million, or 17%, from the fourth quarter 2000 total of $14.7
million. The continued growth and expansion of the de novo banks, including the
opening of the Company's seventh de novo bank (Northbrook Bank & Trust) in
November 2000, and the growth in the premium finance business were the primary
causes for this increase. Since the end of 2000, total deposits have grown 27%
and total loan balances have risen 32%, requiring higher levels of staffing and
other costs to both attract and service the larger customer base.
Salaries and employee benefits totaled $9.4 million for the fourth quarter of
2001, an increase of $1.5 million, or 20%, as compared to the prior year fourth
quarter total of $7.9 million. This increase was primarily due to increased
staffing at the banks and the premium finance subsidiary due to the increased
volume of business and increases in commissions paid related to fees on mortgage
loans sold.
Other categories of non-interest expense, such as occupancy expense, equipment
expense and data processing, also increased over the prior year fourth quarter
due to the general growth of the Company. Other non-interest expense, which
includes loan expenses, correspondent bank service charges, postage, insurance,
stationery and
- 7 -
supplies, telephone, directors fees, and other sundry expenses, also increased
when compared to the prior year quarter due mainly to the factors mentioned
earlier. In the fourth quarter of 2000, the Company received a partial recovery
of $200,000 related to a fraud loss it reported in the third quarter of 2000.
The recovery was recorded in non-interest expense as a reduction of the
previously reported loss.
For the year ended December 31, 2001, non-interest expense totaled $65.8 million
and increased $8.0 million, or 14%, over 2000. The prior year results reflect a
non-recurring charge of $4.3 million attributable to a fraud perpetrated against
the Company's premium finance subsidiary. Excluding this non-recurring charge,
non-interest expense increased $12.3 million, or 23%, over 2000. This increase
was predominantly due to the continued growth of loan and deposit accounts,
increases in commissions paid to mortgage loan originators and increased
staffing at the Company's premium finance subsidiary. Despite this growth and
the related increases in many of the non-interest expense categories, the
Company's net overhead ratio for 2001 improved to 1.59%, compared to 1.90% in
2000 (excluding the non-recurring charge) and its efficiency ratio improved to
63.66% in 2001 compared to 66.93% in 2000 (excluding the non-recurring charge.)
- 8 -
ASSET QUALITY
Allowance for Possible Loan Losses
A reconciliation of the activity in the balance of the allowance for possible
loan losses for the three months and years ended December 31, 2001 and 2000 is
shown as follows (dollars in thousands):
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2001 2000 2001 2000
----------------- --------------- ------------------ -----------------
Balance at beginning of period $ 13,094 $10,231 $ 10,433 $ 8,783
Provision for possible loan losses 1,898 1,384 7,900 5,055
Charge-offs
-----------
Core banking loans 267 292 1,077 1,050
Indirect automobile loans 339 360 1,080 1,339
Tricom finance receivables 103 -- 103 73
Premium finance receivables 763 647 3,062 1,294
----------------- --------------- ------------------ -----------------
Total charge-offs 1,472 1,299 5,322 3,756
----------------- --------------- ------------------ -----------------
Recoveries
----------
Core banking loans 80 37 236 58
Indirect automobile loans 42 44 194 164
Tricom finance receivables -- -- -- --
Premium finance receivables 44 36 245 129
----------------- --------------- ------------------ -----------------
Total recoveries 166 117 675 351
----------------- --------------- ------------------ -----------------
Net charge-offs (1,306) (1,182) (4,647) (3,405)
----------------- --------------- ------------------ -----------------
Balance at December 31 $ 13,686 $10,433 $ 13,686 $ 10,433
================= =============== ================== =================
Loans at December 31 $2,061,383 $1,558,020
================== =================
Allowance as a percentage of loans 0.66% 0.67%
================== =================
Net charge-offs as a percentage of average:
Core banking loans 0.07% 0.11%
Indirect automobile loans 0.46% 0.50%
Tricom finance receivables 0.55% 0.35%
Premium finance receivables 0.79% 0.43%
------------------ -----------------
Total loans 0.26% 0.24%
================== =================
Provision for possible loan losses 58.82% 67.36%
================== =================
The provision for possible loan losses totaled $1.9 million for the fourth
quarter of 2001, an increase of $514,000 from the $1.4 million recorded in the
fourth quarter of 2000. For the year ended December 31, 2001, the provision
totaled $7.9 million and increased $2.8 million from the prior year total. The
higher provisions in 2001 were a result of overall growth in the loan portfolio
of 32% and a higher level of net charge-offs in the premium finance receivables
portfolio in 2001 compared to 2000.
- 9 -
Management believes the allowance for possible loan losses is adequate to
provide for probable losses in the portfolio. There can be no assurances,
however, that future losses will not exceed the amounts provided for, thereby
affecting future results of operations. The amount of future additions to the
allowance for possible loan losses will be dependent upon the economy, changes
in real estate values, interest rates, the regulatory environment, the level of
past-due and non-performing loans, and other factors.
Past Due Loans and Non-performing Assets
- ----------------------------------------
The following table sets forth the Company's non-performing assets at the dates
indicated. The information in the table should be read in conjunction with the
detailed discussion following the table (dollars in thousands).
December 31, September 30, June 30, December 31,
2001 2001 2001 2000
---- ---- ---- ----
Past Due greater than 90 days
and still accruing:
Core banking loans:
Residential real estate and home equity $ 168 $ 928 $ 389 $ --
Commercial, consumer and other 1,059 495 866 651
Indirect automobile loans 361 384 372 397
Tricom receivables -- -- -- --
Premium finance receivables 2,402 3,131 2,982 4,306
------------------ ------------------ ------------------ -----------------
Total 3,990 4,938 4,609 5,354
------------------ ------------------ ------------------ -----------------
Non-accrual loans:
Core banking loans:
Residential real estate and home equity 1,385 869 411 153
Commercial, consumer and other 1,180 900 978 617
Indirect automobile loans 496 364 274 221
Tricom receivables 104 207 112 --
Premium finance receivables 5,802 6,042 6,392 3,338
------------------ ------------------ ------------------ -----------------
Total non-accrual loans 8,967 8,382 8,167 4,329
------------------ ------------------ ------------------ -----------------
Total non-performing loans:
Core banking loans:
Residential real estate and home equity 1,553 1,797 800 153
Commercial, consumer and other 2,239 1,395 1,844 1,268
Indirect automobile loans 857 748 646 618
Tricom receivables 104 207 112 --
Premium finance receivables 8,204 9,173 9,374 7,644
------------------ ------------------ ------------------ -----------------
Total non-performing loans 12,957 13,320 12,776 9,683
------------------ ------------------ ------------------ -----------------
Other real estate owned 100 244 100 --
------------------ ------------------ ------------------ -----------------
Total non-performing assets $ 13,057 $ 13,564 $ 12,876 $ 9,683
================== ================== ================== =================
Total non-performing loans by category as a percent of its own respective
category:
Core banking loans:
Residential real estate and home equity 0.35% 0.46% 0.22% 0.05%
Commercial, consumer and other 0.21% 0.15% 0.21% 0.18%
Indirect automobile loans 0.47% 0.39% 0.34% 0.30%
Tricom receivables 0.57% 1.08% 0.67% --
Premium finance receivables 2.36% 2.73% 2.71% 2.44%
------------------ ------------------ ------------------ -----------------
Total non-performing loans 0.63% 0.72% 0.71% 0.62%
================== ================== ================== =================
Total non-performing assets as a
percent of total assets 0.48% 0.54% 0.55% 0.46%
================== ================== ================== =================
Allowance for possible loan losses as a
percent of non-performing loans 105.63% 98.30% 94.79% 107.75%
================== ================== ================== =================
- 10 -
Non-performing Core Banking Loans
Total non-performing loans for the Company's core banking business were $3.8
million as of December 31, 2001 and were comprised of $1.6 million of
residential real estate and home equity loans and $2.2 million of commercial,
commercial real estate and consumer loans. The non-performing residential real
estate and home equity loans increased $1.4 million from the December 31, 2000
balance and represented 0.35% of such outstanding loans at December 31, 2001.
The non-performing commercial, commercial real estate and consumer loans
increased $971,000 from the December 31, 2000 balance and represented 0.21% of
such outstanding loans at December 31, 2001, compared to 0.18% as of December
31, 2000. Non-performing core banking loans consist primarily of a small number
of commercial and real estate loans, which management believes are well secured
and in the process of collection. The small number of such non-performing loans
allows management to monitor closely the status of these credits and work with
the borrowers to resolve these problems effectively.
Non-performing Premium Finance Receivables
The table below presents the level of non-performing premium finance receivables
as of December 31, 2001 and 2000, and the amount of net charge-offs for the
years then ended.
12/31/01 12/31/00
-------- --------
Non-performing premium finance receivables $8,204,000 $7,644,000
- as a percent of premium finance receivables 2.36% 2.44%
Net charge-offs of premium finance receivables $2,817,000 $1,165,000
- as a percent of average premium finance receivables 0.79% 0.43%
The level of non-performing premium finance receivables, although higher than
the amount at December 31, 2000, has declined since the levels at March 31,
2001, June 30, 2001 and September 30, 2001. Additionally, non-performing premium
finance receivables as a percent of total premium finance receivables
outstanding declined to 2.36% at December 31, 2001, from 2.73% and 2.44% at
September 30, 2001 and December 31, 2000, respectively. As noted in the
Company's prior quarterly earnings releases in 2001, the Company eliminated more
than 1,300 relationships with insurance agencies that were referring business to
our premium finance subsidiary that had relatively small balances and higher
than normal delinquency rates. The business associated with those accounts is
gradually becoming a less significant percent of the entire portfolio and should
be nearly extinguished by the end of the current fiscal year. We continue to see
progress in this portfolio and we continue to expect the level of non-performing
loans related to this portfolio to decline again in the next quarter.
The ratio of non-performing premium finance receivables fluctuates throughout
the year due to the nature and timing of canceled account collections from
insurance carriers. Due to the nature of collateral for premium finance
receivables, it customarily takes 60-150 days to convert the collateral into
cash collections. Accordingly, the level of non-performing premium finance
receivables is not necessarily indicative of the loss inherent in the portfolio.
In the event of default, the Company has the ability to cancel the insurance
policy and collect the unearned portion of the premium from the insurance
carrier. In the event of cancellation, the cash returned in payment of the
unearned premium by the insurer should generally be sufficient to cover the
receivable balance, the interest and other charges due. Due to notification
requirements and processing time by most insurance carriers, many receivables
will become delinquent beyond 90 days while the insurer is processing the return
of the unearned premium. Management continues to accrue interest until maturity
as the unearned premium is ordinarily sufficient to pay-off the outstanding
balance and contractual interest due.
- 11 -
Non-performing Indirect Automobile Loans
Total non-performing indirect automobile loans were $857,000 at December 31,
2001 and $618,000 at December 31, 2000. The ratio of these non-performing loans
to total indirect automobile loans was 0.47% at December 31, 2001, 0.39% at
September 30, 2001, and 0.30% at December 31, 2000. As noted in the Allowance
for Possible Loan Losses table, net charge-offs as a percent of total indirect
automobile loans decreased from 0.50% in 2000 to 0.46% in 2001. Despite the
increase in the level of net non-performing loans, these ratios continue to be
below standard industry ratios for this type of lending. Due to the impact of
the current economic and competitive environment surrounding this type of
lending, management has been reducing the level of new indirect automobile loans
originated. Indirect automobile loans at December 31, 2001 were $184 million, a
decrease of $19 million, or 10%, from the balance at December 31, 2000.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements related to the Company's
financial performance that are based on estimates. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and is including this statement for purposes of invoking these safe
harbor provisions. Actual results could differ materially from those addressed
in the forward-looking statements due to factors such as changes in economic
conditions, competition, or other factors that may influence the anticipated
growth rate of loans and deposits, the quality of the loan portfolio, loan and
deposit pricing, unanticipated changes in interest rates that negatively impact
net interest income, future events that may cause unforeseen loan or lease
losses, slower than anticipated development and growth of Tricom and the trust
and investment business, unanticipated changes in the temporary staffing
industry, the ability to adapt successfully to technological changes to compete
effectively in the marketplace, failure to obtain the necessary approvals to
consummate the purchase of the Wayne Hummer Companies, competition and the
related pricing of brokerage and asset management products, unforeseen
difficulties in integrating the acquisition of the Wayne Hummer Companies, the
ability to pursue acquisition and expansion strategies and the ability to
attract and retain experienced senior management. Therefore, there can be no
assurances that future actual results will correspond to these forward-looking
statements.
- 12 -